InvestmentandRiskMitigation

For the first time in 133 years, Angola has a new penal code. On January 23, 2019, the National Congress of Angola approved the new code, which will replace the one put in place by the Portuguese just after the Congress of Berlin, where the European powers divided Africa into colonial spheres of influence. The new code is one of the central pillars of President João Lourenço’s criminal justice reform program, and is supported by both the ruling MPLA and the main opposition party, UNITA. The law was approved by the Parliament with only one dissenting vote and will come into force 90 days after its approval publication.

The new penal code is being celebrated by the government as making important progress toward adapting the law to modern Angolan society. The new code proposes a structural change of the Angolan penal system and, particularly regarding the fight against corruption, it promotes more transparency consistent with the global trend to increase anticorruption enforcement, as we previously covered here and here. In this post, we outline the main changes promoted by the new penal code related to corruption and economic crimes and the implications for companies operating in Angola.

New Provisions Related to Corruption and Economic Crimes

Since he took office in September 2017, President Lourenço has taken concrete actions to promote economic stabilization, fight corruption, and attract foreign direct investment. In March 2018, the new administration created a specialized anti-corruption (“SCI”) unit within the executive branch tasked with preventing corruption-related crimes. Since then, there has been a significant increase in the number of investigations related to economic crimes, including cases involving ministers and public managers. According to the former Deputy Attorney General of Angola João Coelho, the most investigated areas are the banking sector and employees from the Tax General Administration (AGT). The SCI and the National Police of Angola have been also been cooperating internationally, including with partners such as Interpol.

Anti-Corruption Provisions of the New Code

Chapter IV of the code criminalizes “whoever offers, promises or gives” to public officials (article 360) or to judges or arbitrators (article 362) an undue benefit, either patrimonial or not; and the crimes of passive corruption, which penalizes the public officials (article 361) or judges and arbitrators (article 363) who “ask for, request, or accept, for himself or for third parties” any undue benefit or promise of benefit. Chapter IV also criminalizes other economic crimes, such as “influence traffic” (article 368) and the embezzlement of public assets (article 364) (“peculato”).

Anti-Money Laundering Provisions of the New Code

In an effort to protect the financial system and strengthen anti-money laundering measures, the code creates new limits on economic conduct and punishes crimes against consumers. One of the most significant changes is that article 470 limits cash transactions to prevent the circulation of large amounts of money outside the formal financial system. The limitation is three million kwanzas (8,522 euros) for citizens and five million kwanzas (14,285 euros) for companies.

Such limits were not covered by the previous penal code, nor by the Anti-Money Laundering and Countering Financing of Terrorism Law (Law 34/11). The new provisions will allow disciplining and punishing some practices that harm the financial market. According to the Deputy Attorney General Mota Liz, these changes also provide “greater security for the national currency” and assures more “fluidity to the national financial system.” These changes may create a more secured environment for investors in Angola, particularly in the banking sector.

Notable Arrests and Investigations

In addition to enacting new legislation, numerous government officials have been terminated or face legal prosecution for alleged corruption. One of the most significant cases involved Filomeno dos Santos, son of the former president. After being terminated from his position as head of Angola’s $5 billion sovereign wealth fund, Mr. dos Santos was arrested in September 2018 by Angolan authorities in connection with a fraud pertaining to a $500 million transaction out of Angola’s sovereign wealth fund and other crimes. On March 24, 2019, Mr. dos Santos was released from prison after the Attorney General’s Office announced that it recovered $2.34 million from banks in the UK and in Mauritius.

Isabel dos Santos, the former president’s daughter, was also fired by Lourenço from her position as the head of Sonangol, Angola’s state oil company, and there are indications that the Attorney General’s office will start an investigation against her. Other high profile individuals are under investigation by the Attorney General’s Office for alleged corruption, such was the former president of the Congress, Higino Carneiro, and the former vice president of Angola Manuel Vicente.

Looking to the Future

The anticorruption and anti-money laundering provisions of the new penal code reinforce the government’s commitment to far-reaching reforms. Although it is still too soon to assess the extent to which these provisions will be enforced, the approval of the new code is undoubtedly a sign that the Angolan government will take a more aggressive approach to combatting corruption and money laundering in the country. If fully implemented, the new code will increase the legitimacy of public institutions and help level the playing field for the private sector.

Juliana Rodrigues is an international associate in Covington’s New York office. Juliana received her bachelor and master degrees in law in her home country of Brazil before receiving her LLM from New York University of Law.

Ethiopia’s prime minister, Dr. Abiy Ahmed—the youngest African leader at 42 years old—has initiated a series of unprecedented economic and political reforms in his first 12 months in office. The core challenge that he faces is moving the economy from state-led to market-based growth while overseeing far-reaching political reforms. Success is far from guaranteed but his accomplishments so far have created an enormous sense of opportunity within the country.

Ethiopia has been one of the continent’s best economic performers, growing at a rate of 10 percent for the past 15 years. It has been a model of state-directed development with a government that permitted no political opposition but invested heavily in infrastructure, agriculture, education, and other sectors. Since Abiy’s emergence as prime minister, there has been a sweeping political opening with indications that economic reforms will be almost as significant. If Abiy is able to succeed with his reforms, Ethiopia will emerge as one of Africa’s undisputed leaders.

Reforming the economy

The prime minister has ambitious plans for the economy. According to the Ethiopian private equity firm, Cepheus Growth Capital, the government plans to fully privatize state-owned sugar plants, railways, and industrial parks. It will partially privatize the four crown jewels of the economy: Ethiopian Airlines, Ethio Telecom, Ethiopian Electric Power Corporation, and Ethiopian Shipping & Logistics Services Enterprises. With more than 60 million mobile and fixed-line subscribers, the government is also planning to publish tenders for two new operating licenses in the telecom sector, which inevitably will lead to competition in new financial and mobile-based services.

The one sector that does not appear to be opening in the near term is the banking sector. With 16 private banks that have averaged a shareholder return of 33 percent annually over the past decade, there appears to be little incentive to move quickly in reforming the financial sector. As the state-owned Commercial Bank of Ethiopia controls at least half of the sector’s assets, continued poor services and an inability to transfer funds between banks will be a constraint on the government’s reform efforts. Inevitably, there will be pressures to allow other African and international banks into this sector.

Ethiopia has been a pioneer in the creation of Chinese-inspired industrial parks to attract investments in light manufacturing, especially textiles and apparel, and stimulate exports. Currently, there are five government-built industrial parks that have created about 45,000 jobs for Ethiopians and four private industrial parks. In some instances, the industrial parks have performed well, such as the Bole Lemi industrial park outside Addis. Other parks, such as Hawassa, have experienced difficulties with labor, staff retention, and productivity. Ethiopia is aiming to create 30 industrial parks by 2025 in order to increase jobs, generate export revenue, and grow the manufacturing sector from 5 percent to 22 percent of the economy’s productivity. Such brands as Michael Kors, H&M, Children’s Place, and apparel giant PVH are already sourcing products from the country.

Abiy’s efforts have already led to results. The World Bank has provided Ethiopia with $1.2 billion in direct budget support, the largest loan ever to a country in sub-Saharan Africa and the first loan to the country in 13 years after lending was suspended in the wake of the disputed elections of 2005. An Abu Dhabi real estate developer plans to invest $2 billion in a mixed-use development in the capital city of Addis that will include the construction of more than 4,000 residences. More investment is likely to flow into the country as the privatization process moves forward.

The Peacemaker

Abiy wasted little time in normalizing relations with Eritrea after 20 years, a stunning development given the previous hostility between the two countries. He freed tens of thousands of political prisoners in his first months in office. Most recently, Abiy accompanied Somalian President Mohamed Farmaajo to Nairobi to meet with Kenyan President Uhuru Kenyatta in an effort to restore diplomatic relations between his two east African neighbors. Last May, Ethiopia announced that it would remove visa requirements for travelers from all African nations and last week the country became the 21st African nation to ratify the African Continental Free Trade Agreement.

While working to stabilize the perpetually unsettled region of the Horn of Africa, Abiy faces stiff political challenges at home. Last September, unrest in the capital forced him to cancel his trip to the opening of the United Nations General Assembly. The unrest culminated several years of protests and clashes in Oromia, Ethiopia’s largest and most populous state, and Amhara. As the International Crisis Group notes, a key source of frustration was the inability of the previous Ethiopian People’s Revolutionary Democratic Front (EPRDF) government to create the needed 2 million jobs annually and to ensure that growth in wages kept pace with the rising prices of staples and commodities.

In an effort to end intercommunal violence and to come to terms with the human rights abuses of the past, Ethiopia’s parliament has approved the creation of a reconciliation commission. Not only has there been an increase in ethnic violence, mainly between the Oromo community and other minority groups, since Abiy’s election, but Ethiopia’s security forces have long been accused of abuses against government opponents. The U.N. estimates that 2.4 million Ethiopians have been displaced by intercommunal violence.

One of Abiy’s key tests will be preparing for general elections in 2020. In the 2015 elections, the then-ruling EPRDF won all 546 parliamentary seats. The prime minister has taken an initial step in raising expectations for a credible poll by appointing Birtukan Mideksa, a former judge and opposition leader, as head of the National Election Board of Ethiopia, after persuading her to return from self-imposed exile.

The United States and Ethiopia

Ethiopia has become a priority country for the Trump administration. The President’s Advisory Council on Doing Business in Africa, led by Commerce Secretary Wilbur Ross, made it one of four stops on an Africa trip last June. On his first visit to Washington as prime minister, Abiy met with Vice President Mike Pence who praised his “historic reform efforts.” In December, the Millennium Challenge Corporation selected Ethiopia as eligible to develop a threshold program to reduce poverty and promote economic growth. It remains to be seen, however, what concrete support the administration is able to provide Ethiopia. In the wake of the deadly crash of Ethiopian Airlines’ new Boeing 737 Max 8, clearly hard questions will be asked about the relationship that has existed for six decades between the airline and the plane manufacturer. If there was ever a time for the U.S. to step up its support for a key African partner, it is now.

This blog was first published by the Brookings Institution, where Mr. Schneidman is a non-resident fellow, on Tuesday, March 26, 2019.

With an emerging middle class of 400 million people, 10 of the fastest growing economies globally, and the most youthful population of any region, Africa is a continent of significant opportunity. There are also risks, as there are anywhere, including the challenge of combatting corruption, navigating opaque regulations and developing a skilled workforce. Below are tips for business success in Africa:

Build Personal Relationships: Most Western businesses are data driven and transactional in nature. Business in Africa is predicated on relationships. Developing personal relationships and trust with business counterparts and government officials is a key dimension to commercial success. Leaders in government and business on the continent will take time to understand what is being presented to them and ensuring that any transaction is genuinely win-win.

Engaging Government: The role of government in the African business environment is more pronounced than in most other regions. It is important to reach out to key decision-makers at various levels of government to keep them informed of broad commercial objectives. This can be done in a time effective and transparent manner.

Align Commercial and Development Objectives: Every African government has a national development strategy. Whether a company is making an investment in life sciences, ICT, energy or manufacturing, demonstrating how an investment is going to help the government achieve its development objectives in a particular sector is very helpful to commercial success.

Mitigating the Corruption Risk: Corruption risk varies greatly by country and sector, and companies that mitigate it successfully start with a thorough risk assessment and appropriately tailored compliance measures. They also treat compliance as a critical “business enabler,” and use a mix of compliance, government affairs, and commercial levers to mitigate risk.

Investing in Africa’s Talent: It is worth including a high-quality-skills-training program as part of any investment strategy. The appetite and capability of young African men and women to learn global best business practices cannot be overestimated. Hiring locally and investing in career development will pay significant long-term dividends.

Come with Solutions: Some of the most immediate market-entry challenges include the nascent consumer credit market, currency risk, and the need to bring financing for most projects. Products must also be tailored to market realities of affordability and infrastructure limitations.

Local Counsel: Finding the right local counsel in Africa’s 54 jurisdictions can be challenging, especially in smaller markets. Covington has worked on matters in virtually every jurisdiction in the region and can be helpful in identifying, engaging, and coordinating the work of well-qualified local counsel.

Africa’s Growth Prospects. Africa’s gross domestic product (GDP) is expected to grow at 3.8 percent in 2019, which is a significant improvement over last year’s regional growth rate of 2.6 percent. Excluding the continent’s largest economies (Angola, Nigeria and South Africa), which are growing collectively at an average of 2.5 percent, the aggregate growth rate for the region would be a healthy 5.7 percent. According to Foresight, about half the of world’s fastest growing economies are in Africa, with 20 economies expected to grow at five percent or more over the next five years. This includes Burkina Faso, Tanzania, Uganda, Kenya, Senegal, Benin, Cote d’Ivoire, Ethiopia, Ghana and Rwanda. We will be watching whether commercial debt, both from the issuance of Eurobonds and Chinese loans, starts to be a drag on growth. Good governance and transparency will also impact the economic performance across the region.

African Continental Free Trade Agreement. While some of the world’s leading economies struggle to grow due to the implementation of protectionist trade policies, the leadership of the African Union (AU) is working to create the world’s largest free trade zone since the formation of the World Trade Organization. Concerns about an increasingly bureaucratic AU did not prevent 50 of the 55 African nations from signing the AfCFTA. To date, 18 of the required 22 countries have ratified the framework designed to eliminate tariffs on a large variety of goods and significantly boost intra-Africa trade. Non-tariff barriers to trade—including burdensome customs controls, high settlement payments, deficient distribution channels, and corruption—may prove to be the most difficult hurdles to a more prosperous Africa and deserve close scrutiny as the AfCFTA progresses toward implementation. Furthermore, collaboration between the private sector and governments will be critical in areas of intra-African trade infrastructure, trade finance, trade information, and logistics services for the AfCFTA to be successful.

Enhancing Africa’s Connection to World-Class Computing. Africa’s economic growth in 2019, which will be accelerated by technological innovation across all sectors, coincides with global trends toward digital and shared economies. A growing focus on efficient and scalable utilization of assets will lead to innovative, high growth, and high impact opportunities in Africa. Critical to this transformation is the commitment by leading cloud computing companies to build data centers on the continent, which will enable broader access to advanced computing resources and services driven by artificial intelligence, machine learning, and the Internet of Things (IoT). Cloud computing resources will lead to more productive and knowledge-based economies and help Africa’s young and fast-growing population create innovative opportunities while addressing challenges in key sectors like healthcare, transportation, trade, and education. How African policy makers collaborate with the private sector to enact enabling and harmonized privacy, cybersecurity, and related policies and regulations that protect individual and institutional data is one of the key issues to watch in this space.

Development Finance in Africa. Leveraging the power of the private sector through development finance is an increasingly popular complement to traditional foreign aid around the world. In October, the United States took steps to modernize its approach to development finance with the passage of the Better Utilization of Investment Leading to Development (Build) Act, which was signed into law by President Trump on October 5, 2018. The Act creates a new institution—the U.S. International Development Finance Corporation (USDIFC)—which will merge the Overseas Private Investment Corporation (OPIC) and several USAID facilities, including the Development Credit Authority (DCA), the Office of Private Capital and Microenterprise (OPCM), and enterprise funds. With $60 billion dedicated to USIDFC, the new entity will have twice the amount of money to invest as compared to OPIC’s current lending cap of $29 billion. OPIC’s president and chief executive was explicit about one of the primary motivations behind USIDFC: to be “a financially sound alternative to the state-directed initiatives pursued by China that have left many countries deep in debt.” It is estimated that China leverages $40 billion through is varied development finance institutions, monies implemented with no political conditionalities attached under the umbrella of China’s One Belt One Road initiative. According to the Washington-based Atlantic Council, between 2012 and 2016, projects in sub-Saharan Africa accounted for the largest share of DFI commitments ($14.2 billion), followed by East and South Asia ($10.5 billion), and Latin America ($10.2 billion). Monitoring the implementation of USDIFC, and assessing how its offerings affect China’s DFIs, if at all, will be of interest to corporations and public policy makers alike.

A Continuing Trend of Anti-Corruption Enforcement. Last January, we noted that anti-corruption initiatives were on the rise on the continent, with 2018 declared the “African Anti-Corruption Year” by the African Union. If 2018 is any indicator, we expect that this trend will continue in 2019 and beyond. While the sheer volume of anti-corruption enforcement actions involving conduct in Africa in 2018 was not particularly significant, recent developments suggest that companies operating in Africa can expect heightened scrutiny from anti-corruption enforcers in the coming year. As we have previously described, France’s arrival on the international enforcement scene is likely to be particularly notable in this regard, given the large number of French companies operating in Francophone Africa. On the domestic enforcement front, in South Africa we will be watching developments in the sprawling “State Capture” matter, which is focused on allegations of widespread corruption and conflicts of interest in the government of former president Jacob Zuma. We can also expect U.S. enforcers to continue to be active on the continent, as evidenced by the successful prosecution of Chinese national Patrick Ho in a case involving alleged bribes on behalf of a Chinese energy company in Chad and Uganda, and the early 2019 indictments of a number of individuals in connection with Mozambique’s “Tuna Bond” scandal. Finally, as we have previously discussed, multilateral development banks will continue to play an important enforcement role in Africa. The World Bank, which has aggressively enforced its sanctions and debarment procedures for several years, initiated 28 investigations in Africa in its 2018 financial year alone, representing 41 percent of all new investigations. With this enforcement activity in the background, we expect that companies operating in Africa will need to continue to focus on developing and implementing effective anti-corruption compliance programs. In the coming weeks and months, we will be further analysing anti-corruption developments on the continent, and providing insights on how companies can best mitigate corruption risk in their operations in Africa.

Project Finance. Based on the African Development Bank’s estimate that there remains a $68–$108 billion financing gap to meet Africa’s infrastructure needs, which is estimated to be in the range of $130–$170 billion annually, we expect to see continued growth in project finance projects during 2019. Lending from development finance institutions (DFIs) continues to play a crucial role in project finance across Sub-Saharan Africa, particularly in the infrastructure sector. Power projects will also be a key driver of project finance work on the continent. Today, an estimated 600 million people in Africa lack access to electricity. This power deficient on the continent coincides with the increasing interest and investment in renewable energy sources, and thus we expect to see more renewable energy projects on the continent in 2019. In particular, we anticipate a higher volume of smaller scale power projects due to the demand for less complex projects that can be implemented quickly.

Climate Change, Energy, and Business. Climate change will remain a key issue for countries and companies in 2019, as we continue to see impacts globally from fires in California to a faster melting glaciers in Antarctica. The Intergovernmental Panel on Climate Change has declared Southern Africa a “climate change hot spot.” In 2019, we expect there will be more focus on types of fuel for new projects that are being developed in Africa. The financial impacts and outlook for renewable (wind, geothermal, hydro, and solar) and thermal (gas, coal, diesel, and HFO) energy will be impacted by improvements in technology as well as regulatory and economic issues. The handling of these issues (price, intermittency, base load, land rights, and tax incentives) will be key to financing these projects. There will be increasing pressure from the development finance institutions to finance more renewables projects, but economic factors will determine most fuel sources such as fuel availability, grid stability and strength, and overall project cost. All of this will add complexity and time for completion of these projects. Notably, there are potential wind and geothermal projects in Kenya and Ethiopia, while South Africa is likely to implement the next round of bids for the REIPPP wind projects.

South Africa. With elections expected in May, the Ramaphosa government needs to deliver on economic growth which the World Bank indicates was 1.3 percent in 2017, rising only to 1.4 percent in 2018, due to high levels of unemployment, low business confidence, and policy uncertainty. While the issue of expropriation without compensation looms large, UBS, the world’s largest wealth manager, believes that the South African government will manage the land reform issue “sufficiently well.” Reform of key parastatals including, Eskom and South African Airways, is a pressing matter. The ongoing prosecution of Jacob Zuma and his former officials will be a constant reminder of the corruption and lack of transparency that characterized his tenure. On the positive side, Ramaphosa’s campaign to attract $100 billion in new investments in five years is starting to show results. The South African government is also hopeful that last year’s Job Summit will be a stimulus for the creation of over 10,000 jobs.

Ethiopia. Perhaps the most exciting leader on the continent, 42-year old Dr. Abiy Ahmed has raised expectations that Ethiopia will become the next economic powerhouse on the continent. Not only is Ethiopia the second most populous country, with 100 million people, but it is the fastest growing economy in Africa with a GDP of 8–10 percent. Abiy’s unprecedented reforms include normalized relations with Eritrea after 20 years of hostility, the release of thousands of political prisoners, lifting the state of emergency, and cutting the number of ministries from 28 to 20 while ensuring half of all cabinet positions are filled by women. Some of the challenges that Abiy will face in coming months include managing the influx of refugees from Eritrea (which are arriving at an estimated 10,000 per month), decreasing ethnic tensions and competing factions within the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF), and preparing for local elections this year and national elections next year. The World Bank’s commitment of $1.2 billion in budget support is an important vote of confidence in Abiy’s reform process from the international community.

Nigeria. When elected in 2015, President Buhari promised to realize 10–12 percent annually GDP growth, secure the territorial integrity of the nation, and combat corruption. However, for 2019 the World Bank forecasts 2.2 percent growth for Nigeria, the Boko Haram insurgency in the northeastern part of the country persists despite significant progress, and the country continues to score lower than average for Sub-Saharan African nations on the Corruption Perception Index. These three fundamental issues will frame the presidential election scheduled for February 16, 2019. President Buhari may have an advantage given the power of incumbency but Atiku Abubakar, who was Vice President under President Obasanjo, will present a stiff challenge given his strong ties to business across the country. With 91 political parties and 35 presidential aspirants, there could be a run off given the spirited campaigns of Professor Kingsley Moghalu (former Deputy Governor of the Central Bank), and Donald Duke (a successful former governor of Cross Rivers State), and others.

A version of this blog was first published by African Law & Business. If you have questions about Covington’s Africa Practice, please contact Witney Schneidman at wschneidman@cov.com.

New York, January 29, 2018 — Jay Ireland has joined Covington as a senior advisor in New York.

Mr. Ireland has nearly four decades of senior executive experience across a number of industry sectors, including telecommunications and media, healthcare, energy, financial services, and manufacturing. Most recently, he served as President and CEO of GE Africa, where he was responsible for expanding the company’s footprint across Sub-Saharan Africa in power generation, healthcare, transportation, oil and gas, aviation, and financial services. His efforts led to being named “International Business Leader of the Year” in both 2012 and 2013 by Africa Investor Magazine.

In addition, Mr. Ireland has held a number of executive positions outside of GE including as the co-chair of the U.S.-Africa Business Center at the U.S. Chamber of Commerce (2017-2018), a vice chair and member of the Corporate Council on Africa (2012-2018), and the chairman of the U.S. President’s Advisory Council on Doing Business in Africa (2013-2018). He currently serves as a board member of the MasterCard Foundation, a charity dedicated to promoting youth employment in Africa.

“For the last eight years Jay has been one of the top business leaders on the continent. He has a keen understanding of how business and policy intersect and how business can positively affect the development priorities of African nations,” said Witney Schneidman, chair of Covington’s Africa Practice Group and the former Deputy Assistant U.S. Secretary of State for African Affairs. “We are very fortunate to have someone with Jay’s experience and business acumen as part of our team and I know that our clients will benefit from his expertise across the continent.”

“I have deeply enjoyed my time living and working in Africa and have made the decision to join a firm that allows me to continue my efforts in helping local and international businesses succeed on the continent,” said Mr. Ireland. “Covington’s Africa Practice is just the sort of platform I had in mind. With the global expertise in government affairs, a strong sense of commitment to Africa, and a growing office in Johannesburg, I strongly believe the firm’s clients will be able to benefit from the team’s insights and experience.”

Mr. Ireland received a B.A. in Political Science at St. Lawrence University and serves as a member of its Board of Trustees.

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In an increasingly regulated world, Covington & Burling LLP provides corporate, litigation, and regulatory expertise to help clients navigate their most complex business problems, deals, and disputes. Founded in 1919, the firm has more than 1,000 lawyers in offices in Beijing, Brussels, Dubai, Frankfurt, Johannesburg, London, Los Angeles, New York, Palo Alto, San Francisco, Seoul, Shanghai, and Washington.

Tebogo Movundlela is the CEO of Aurora Wind Power, which is operating the West Coast 1 wind farm in South Africa. Owned by a consortium formed by Engie and South African investors (Investec Bank Limited and Kagiso Tiso Holdings), Aurora Wind Power celebrated the commercial operation of its 94 MW wind farm in June 2015. Secured in the second bidding round of the Renewable Energy Independent Power Producer Procurement (REIPPP) programme organized by South African authorities, West Coast 1 is strategically situated in the Western Cape Province, 130 km north of Cape Town, where the quality of wind resource produces high quality of electricity. The wind farm is expected to offset an estimated 5.6 million tons of CO2 over the 20-year duration of its power purchase agreement (PPA). The estimated annual energy production represents the consumption of approximately 110,000 low income houses.

Tell us a bit about your involvement in the South African renewable industry?

I am currently the CEO of Aurora Wind Power, a role that I have held since 2017, previously being the CFO of the company. My role is to ensure the optimal operation of the plant under high health and safety standards. Aurora interacts with a diverse group of stakeholders (from lenders, shareholders, and Government authorities to the surrounding community). Through the multitude of agreements in place and through common goals, we are continuously engaged with these stakeholders to ensure that the project objective – to deliver clean, safe and reliable energy, in a socially responsible way – are achieved.

In parallel, I also hold the position of chairperson of the South African Wind Energy Association (SAWEA). The organization is concerned with advocating for the growth and sustainability of the wind industry in South Africa. The country is undergoing an energy transition and we would like to see wind well established in the energy mix, including activities across the value chain and in a manner that contributes to a just energy transition.

What challenges is Aurora Wind Power facing?

In spite of being a ring fenced entity, we are continuously looking for opportunities to maximize shareholder value, whether this is through operational efficiency or financial optimization. Aurora has also made socio-economic development commitments to the South African government where we have contractual obligations to expend a percentage of our turnover on community development programmes. South Africa has one of the highest Gini coefficients* in the world and therefore the need is substantial. Through relevant and targeted programmes, we hope to leave behind empowered communities after the end of our 20-year PPA.

How do you see the future of renewable energy in South Africa?

The signing of the 27 projects in 2018 was indeed a positive signal by the South African government after over 2 years of no activity in the REIPPP programme. Further the draft Integrated Resource Plan (IRP) 2018 indicates a notable allocation of 16,270 MW of renewables leading up to 2030, subject to ministerial determinations and periodic review of the IRP. The ruling party, the ANC, has also recently stated that it will “Continue to support the use of renewable technologies in the country’s energy mix to reduce the cost of energy, decrease greenhouse emissions, build the local industry through increased localization and create jobs […]”. The potential for renewables is diverse and ranges not only from utility scale power generation, but to mini-grids, off-grid, energy efficiency solutions to integrated grids, storage, hybrid models and the necessity for investment in additional transmission lines. My role at SAWEA is to contribute to the realisation of this potential.

* The Gini coefficient is a measure of statistical dispersion intended to represent the income or wealth distribution of a nation’s residents, and is the most commonly used measurement of inequality. It measures the inequality among values of a frequency distribution (for example, levels of income). A Gini coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income). A Gini coefficient of 1 (or 100%) expresses maximal inequality among values (e.g., for a large number of people, where only one person has all the income or consumption, and all others have none, the Gini coefficient will be very nearly one).

In November and December 2018, Madagascar went through two rounds of presidential elections. These were supposed to pull the country out of its marasmus of irregularly changing leaders that bedeviled its entire 20th century history.

In 2001, election results were disputed: victory was claimed both by Didier Ratsiraka, the on-and-off President for the previous quarter century, and by Marc Ravalomanana (Marc), the mayor of Antananarive (Tana), the country’s capital. The world looked on at the bizarre picture of a country with two presidents (and two capital cities, for a period of time). Marc eventually prevailed, with the support of the international community, and embarked on an ambitious development program.

In 2009, something of a repeat followed: during Marc’s second term in office, he was challenged by another mayor of Tana, Andry Rajoelina (Andry) who with military support staged a coup d’état. Andry’s rule, however, was not recognized internationally. The economy stagnated.

Elections were finally held in 2013, with proxies of the two antagonists running against each other. Andry’s man, Hery Rajaonarimampianina (Hery), won narrowly.

The 2018 elections featured all four of the above mentioned former presidents among the 36 total candidates, on what ended up being a rather complicated ballot, particularly considering that one third of the population is illiterate. There were a considerable number of alleged spoiled ballots based on incorrect markings denoting the voter’s preference, for example, by markings like “+” rather than the required “x.” These errors were so significant in some jurisdictions that the central authorities had to eventually review and correct some local results.

The first round of elections was marred by a variety of other problems as well. A group of 25 long-shot candidates formed “the Coalition,” joining together to protest against various aspects of the election, including the incomplete and/or obsolete election rosters, as well as the non-transparent sources and uses of campaign financing. Many of these complaints were shared by international observers. Ballot counting was undercut by poorly trained election workers and remarkably complicated post-election procedures. It did not help that the Central Election Commission (CENI) took a long time to collate the votes. The High Constitutional Court (HCC)—using different software than CENI—eventually verified the results.

Only two candidates realized support in the double digits and progressed to the second round: none other than the old adversaries Andry Rajoelina (39.23 percent) and Marc Ravalomanana (35.35 percent). In a traditional division of the country (the Madagascar Darby, as it has been called), Andry’s support proved to be strongest in the agricultural lowlands in the North, the Eastern seaboard and South, whereas Marc polled best in the more industrial Central Highlands, including the capital Tana. Hery, the outgoing president, trailed badly, with 8.82 percent of the vote, but still won outright in the Sava region in the North-East and made a strong showing in the extreme South of the country. Of all the other candidates, which included five women and the 84-year old veteran Didier Ratsiraka, only three topped 1 percent of the vote.

In the run-up to the second round of voting, CENI made important efforts to improve the voting logistics, particularly in training election personnel. Of course, having two candidates instead of 36 in and of itself simplified the voting dramatically. The question was, would Andry manage to protect the relatively slim lead that he held over Marc in the first round? Up to a point, this depended on which way the defeated candidates would throw their support. In effect, they split three ways—between the two leaders, and non-committed. Hery, the only third candidate with any serious backing, stayed non-committed (“ni-ni”). One might imagine, however, where his true inclinations lie, having acted as Andry’s erstwhile finance minister, and his proxy in the 2013 elections.

In the second round, Andry defeated Marc fairly persuasively, roughly 55 percent to 45 percent. The provisional results, published on December 27, were consistent with the final results published on January 8, 2019: 55.66 percent for Andry, 44.34 percent for Marc. Another noteworthy statistic was the participation level which was even lower than in the previous elections: in the second round, it dropped from over 54 percent to just under 48 percent—recapitulating the pattern of 2013, when the first round saw over 60 percent participation, dropping to under 51 percent in the second round.

Not surprisingly, the results were challenged by Marc, the loser, but have been upheld by CENI and the HCC, as well as the significant international observer community. On January 8, 2019, the high constitutional court confirmed the election results and Marc reportedly shook Andry’s hand in court. Andry later told supporters that Marc congratulated him, easing fears of significant post-election unrest. With more than two-thirds of the island’s 25 million people living in extreme poverty, the people of Madagascar and the international community can now focus on whether Andry Rajoelina, the new “Prezida,” succeeds in kick-starting the economic motor of the country.

Karel Kovanda, a Covington Senior Advisor, was part of the 2018 European Union’s Election Observation Mission in Madagascar.

Last week, the Trump administration launched an Africa policy that seeks both primacy and partnership on the continent. The administration’s efforts at partnership, especially as it relates to promoting U.S. business on the continent, are likely to be far more lasting and consequential.

Ambassador John Bolton set the tone for the administration in a speech where he challenged African governments to choose the United States over China and Russia for their commercial, security, and political relationships. This throwback to great power rivalry runs counter to the most significant current trend in Africa’s external relationships, which have more diversity than at any time since the end of the Cold War. This diversity is a key aspect of the economic growth that Africa has enjoyed over the last two decades.

Shortly after Bolton’s presentation, U.S. Agency for International Development Administrator Ambassador Mark Green rolled out the development agency’s first-ever “Private Sector Engagement Policy.” At its center is Green’s belief that the “future of international development is enterprise-driven.” Going forward, USAID will seek to deepen its collaboration with U.S. firms across “all areas of [its] work,” including energy, agriculture, humanitarian assistance, women’s empowerment, education, and crisis and conflict. This reset for USAID will help to increase U.S. commercial engagement in Africa and reflects important developments on the continent. Last month, at the first Africa Investment Forum in Johannesburg, Dr. Akinwumi Adesina, President of the African Development Bank, said, “Africa is not going to be developed by aid. It will be developed by investment.” Creating opportunities for the private sector to impact Africa’s key development priorities is central to addressing some of the continent’s most pressing challenges.

The Strategy: Prosperity, Security, and Stability

The strategy announced by Ambassador Bolton on December 13 is organized around three main principles: prosperity, through “advancing U.S. trade and commercial ties with nations across the region to benefit both the United States and Africa;” security, through “countering the threat from radical Islamic terrorism and violent conflict;” and stability, through foreign aid, while ensuring that U.S. taxpayer dollars for aid are used efficiently.

The focal point of the strategy is countering China’s commercial, security, and political influence in Africa. The administration is right to criticize China where its practices contribute to growing the debt of African nations and worsening corruption and detrimental labor practices. By labeling China’s commercial practices as “predatory” for the strategic use of debt to hold African states “captive,” the administration clearly seeks to offer the U.S. as an alternative, mutually beneficial commercial partner to African nations. However, when it comes to trade and investment, the Trump Africa strategy does not reflect the preference by most African countries and the African Union for a regional approach through the newly created African Continental Free Trade Area, but favors instead a country-specific, bilateral approach. The administration should consider both approaches.

Russia was specified as another country that is rapidly expanding its financial and political influence across Africa, although the reference appears to be more reflexive than anything else. While Russia’s trade with Africa has increased 10-fold between 2000 and 2012, it still accounts for less than 1 percent of Africa’s total trade.

More problematic for U.S. commercial interests in Africa than Russia and perhaps even China are the economic partnership agreements that the European Union has struck with 41 African countries that put U.S. exports to the region at a significant disadvantage. As the U.S. Trade Representative’s 2018 Trade Barriers report notes, the agreement between the EU and the Southern Africa Development Community “will further erode U.S. export competitiveness in South Africa and the region.” This seems to have escaped the administration’s attention.

Tolerating Foreign Aid

The Trump administration, which once wanted to cut development assistance by 30 percent, has now promised to use it “efficiently and effectively” to further U.S. interests in the region. There is no question that aid resources have been squandered in some areas. However, some U.S. aid programs have achieved extraordinary successes, such as the multi-billion dollar President’s Emergency Plan for AIDS Relief (PEPFAR), which has provided more than 13.3 million HIV-infected men, women, and children with antiretroviral therapies globally, the majority of whom are in sub-Saharan Africa.

Along these lines, in a White House fact sheet accompanying Bolton’s address, the administration committed to “preventing, detecting, and responding to outbreaks of deadly infectious diseases.” Given that the Trump administration asked Congress to rescind $252 million in Ebola funding earlier this year, prevented U.S. health experts from working on the frontlines of the current Ebola outbreak in the Democratic Republic of the Congo, and dismantled the global health security and biodefense directorate on the National Security Council, it remains to be seen how the administration will fulfill this commitment.

Security and the United Nations

When discussing peace and security, Ambassador Bolton stated that the U.S. would only support effective and efficient U.N. peacekeeping missions. The world agrees that the United Nations needs more accountable, robust, and effective peacekeeping missions that can decisively bring peace and ensure stability. But it is critical for the U.S. to be more specific about the actions it will take to address this issue and join efforts to reform and empower rather than weaken U.N. peacekeeping operations. The U.S.’s actions should be taken primarily against the belligerents who are causing conflicts and instability rather than the peacemakers and peacekeepers who are trying to end conflicts and bring stability.

Prosper Africa

While Bolton focused on only the administration’s Africa strategy, he also referenced a new initiative, “Prosper Africa,” that presumably will be announced in the near future. This program is intended to support U.S. investment across the region, improve the business climate, and accelerate the growth of Africa’s middle class. The program should be aggressively pursued if the U.S. is serious in its intention of providing an alternative to China or Russia in Africa while advancing U.S. and African interests. Inevitably, USAID’s Private Sector Engagement Policy will be a central piece of the new initiative.

With the passage of the Better Utilization of Investments Leading to Development Act in October—which will create the $60 billion U.S. Development Finance Corporation—the Trump administration may have established an agency with impact on par with the Millennium Challenge Corporation and initiatives such as PEPFAR, the African Growth and Opportunity Act, the Young Africa Leaders Initiative, and Power Africa. By emphasizing partnership over primacy, the Trump administration has the potential to establish a very positive legacy on the continent.

This article was co-authored by Landry Signé and originally published on the Brookings Institution’s Africa in Focus blog.

This is the first of a three-part blog series modified from the Renewable Energy Law Review’s Chapter on South Africa, written by Covington’s Lido Fontana and Sharon Wing. The full article as published in the Law Review is available here.

The fundamental driver for renewable energy projects in South Africa remains the Renewable Energy Independent Power Production Procurement Programme (REIPPPP) of the Department of Energy (DoE). Prior to the formal launch of REIPPPP in August 2011, the local renewable energy market was fairly inconsequential. A lot has changed since then, with REIPPPP being heralded globally as a shining example of how to successfully implement renewable energy auction programmes.

The success achieved by REIPPPP has, however, not been without its challenges. Eskom Holdings SOC Limited (Eskom), the state-owned national utility and sole off taker of electricity from projects under REIPPPP, has refused to sign any further power purchase agreements (PPAs) with independent power producers. Eskom’s position has not been unexpected, with its historical monopoly on generation in South Africa now being gradually challenged by independent power producers that are able to deliver generating assets largely on time and on budget – key features that have been somewhat lacking in Eskom’s skill set for some time, leading to above-inflation increased costs of electricity to the end users (while the tariff prices under REIPPPP continue to drop dramatically in each procurement round).

Eskom’s open hostility to REIPPPP had a dramatically negative effect on the renewable energy market in South Africa, forcing the programme to an unwelcome halt for more than two years. Positive winds of change appeared to be blowing during 2017, however, with promises from government and Eskom that the much delayed Round 4 (as well as the final remaining Round 3.5 concentrated solar power (CSP) project) would be signed. In the end, the government and Eskom did not deliver on these promises during 2017.

While this was a disappointment to the industry, a rather important political event did take place in December 2017, with a new African National Congress leader emerging in the form of Cyril Ramaphosa. Many believe Ramaphosa will play a key role in helping to unblock the issues with Eskom and the DoE’s energy procurement programmes (including REIPPPP) to ensure that the country’s burgeoning renewables market continues. So far, the signs are positive, with all the outstanding Round 4 REIPPPP projects having now been signed with Eskom and the DoE. The much anticipated draft Integrated Resource Plan (IRP) was published for public comment by the DoE. Renewables and gas feature prominently as part of the proposed future energy mix. The widely criticized push by Government for additional nuclear generation appears to have disappeared, at least until 2030.

There is a small but growing rooftop solar market in South Africa. The regulatory regime in South Africa does not currently allow for excess energy to be sold back into the grid, as is the case in certain parts of the United States. A change in the regulatory regime allowing for this would most likely stimulate the rooftop solar market and allow it to grow far more quickly than is currently the case. In addition, there are currently no significant tax incentives or other government-led programmes that mirror those in the United States or the EU that have fostered the growth of renewables to such an extent in those markets. Large-scale retailers are now installing large rooftop solar facilities to reduce their reliance on Eskom as a supplier and what is perceived as ever increasing above-inflation tariff costs. Furthermore, reflecting international market trends, a number of international corporate entities are looking at renewable off-grid solutions. We expect this off-grid market to continue to grow, which presents a challenge for Eskom as its customer base continues to shrink.

The year 2017 brought with it significant uncertainty in respect of transformation in the South African energy sector in relation to renewable energy. In February 2017, then President Jacob Zuma announced in his state-of-the nation address that Eskom would sign all outstanding power purchase agreements from Rounds 3.5 and 4 within the coming months. However, as a result of Eskom’s delaying tactics, 27 contracts, totaling US$4.7 billion and covering 2.3GW of renewable energy projects, were only signed in the first quarter of 2018 because of an interdict brought by the National Union of Metalworkers of South Africa together with Transform SA (a non-profit lobby organization).

There has been further uncertainty regarding the 20 small-scale projects (with capacity of between 1MW and 5MW and an aggregate capacity of 100MW) awarded through the bidding process under the Small Projects Independent Power Producers Procurement Programme. It is uncertain when these projects would be able to begin operations, as only 10 of the 20 have licences, while the remaining 10 are under evaluation. It is to be noted that the South African government has decided that independent power producers (IPPs) owning generators that do not exceed 1MW are to be exempt from the obligation to apply for and hold a licence.

Although coal-fired generation still dominates the energy sector (with a net output of 35.6GW, representing 85 per cent of the South Africa’s total capacity), by the end of 2017, a total of 3.2GW of renewable energy projects had been constructed and connected to the grid. This has brought total investments in renewable energy under REIPPPP to approximately 195 billion rand. Further, South Africa was ranked 10th among G20 countries for renewable energy investment conditions by Allianz Climate and Energy Monitor.

The future looks positive for renewable energy on account of the expectation that South Africa’s new president will be promoting renewable energy to restore investors’ confidence.

In March 2017, World Bank Group president Jim Yong Kim announced that the World Bank would provide a record $57 billion in financing for projects in sub-Saharan Africa in the 2018–2020 fiscal year period. Consistent with that commitment, the World Bank’s most recent annual report indicates that $19.8 billion was issued to partner countries and businesses in sub-Saharan Africa in the 2018 fiscal year. Moreover, the African Development Bank (“AfDB”) reached its highest ever disbursement level in 2017 at approximately $7.4 billion, and it has set an overall lending target for 2018 of approximately $9.5 billion. This means that there are and will continue to be substantial opportunities for companies to bid for and participate in World Bank and AfDB-financed projects in Africa. It is important for companies embarking on such projects to understand the risks associated with the sanctions and debarment procedures that the World Bank, AfDB, and other multilateral development banks (collectively, the “MDBs”) have put in place to ensure that development financing is used for its intended purposes and is not misspent through fraud, corruption, or other forms of misconduct.

The World Bank has aggressively enforced its sanctions and debarment procedures for several years, and the other MDBs, including AfDB, have in recent years followed suit. According to a report published by the World Bank’s Office of Suspension and Debarment (the “OSD Report”), the World Bank imposed sanctions on 489 firms and individuals from 2007 through 2017, excluding sanctions imposed on sanctioned firms’ corporate affiliates and cross-debarments imposed under the 2010 Agreement for Mutual Enforcement of Debarment Decisions between the World Bank, AfDB, the Asian Development Bank (“ADB”), the European Bank for Reconstruction and Development, and the Inter-American Development Bank (“IADB”). The increasing enforcement activity of the other MDBs is reflected in the number of cross-debarments that have recently been imposed by the World Bank. For example, the 2018 annual report published by the World Bank’s Integrity Vice Presidency (“INT”) indicates that the World Bank cross-debarred 73 entities and individuals in the 2018 fiscal year alone, in recognition of debarments imposed by AfDB, ADB, and IADB.

We described the World Bank’s sanctions and debarment process (which is similar to the other MDBs’ processes) in a prior alert. In this post, we discuss the kinds of misconduct that can lead to sanctions proceedings, the potential consequences of a sanctions proceeding, and steps companies can take to guard against the risk of a sanctions proceeding.

What conduct leads to sanctions proceedings?

The World Bank and AfDB sanctions procedures define “sanctionable practices” to include fraudulent, corrupt, collusive, or coercive practices in connection with the awarding or execution of a Bank-financed contract, or the obstruction of a Bank audit or investigation. Most sanctions cases are based on fraudulent practices, followed by corrupt and collusive practices. According to the OSD Report, 81% of World Bank sanctions cases between 2007 and 2017 involved allegations of fraudulent practices, 20% involved allegations of corruption, and 10% involved allegations of collusion (the figures exceed 100% as some cases involved allegations in more than one category).

A fraudulent practice is defined as “any act or omission, including a misrepresentation, that knowingly or recklessly misleads, or attempts to mislead, a party to obtain a financial or other benefit or to avoid an obligation.” Past fraudulent practices matters have involved: the misrepresentation of facts in tender submissions (such as the qualifications, experience, educational background, or availability of key personnel); forgery or falsification of documents (such as audited financial statements, bank guarantees, powers of attorney, business licenses, references, expense claims and supporting documents, and purported agreements with sub-contractors or joint venture partners); over-billing, including by submitting inaccurate time sheets or misrepresenting work progress; failure to disclose agreements with or payments to agents, sub-contractors, or joint venture partners; and failure to disclose conflicts of interest.

A corrupt practice is defined as “the offering, giving, receiving or soliciting, directly or indirectly, of anything of value to improperly influence the actions of another party.” Past corrupt practice cases have involved active corruption (including the payment of bribes, directly or through third parties, to influence tender processes, secure contracts, influence the implementation of projects, or facilitate the processing of invoices) and passive corruption (such as accepting bribes to direct contracts to particular contractors, or to approve inaccurate progress reports or fraudulent invoices). Several cases have involved the provision of non-monetary things of value, such as purported study tours that were primarily recreational in nature, vehicles provided to project officials for personal use, and extra-contractual services.

A collusive practice is defined as “an arrangement between two or more parties designed to achieve an improper purpose, including to influence improperly the actions of another party.” Past collusive practices cases have involved parties simulating competition by bidding with knowledge of each other’s prices or agreeing in advance to win different tenders and share the profits; making arrangements with procurement staff to obtain confidential tender information, modify bid specifications, or artificially inflate prices; and directing contracts to parties in exchange for kickbacks.

Obstructive practices are broadly defined to capture any conduct that may impede an investigation or hinder the Bank’s contractual audit rights. Past cases have involved outright refusals to cooperate with audits or investigations; providing inaccurate or incomplete documentation in response to requests for information; fabricating documents; and deleting email correspondence relevant to an investigation.

Coercive practices include harming a person or property, or making threats, to improperly influence the actions of a party. Coercive practice cases are rare, but in 2014 the World Bank debarred an individual for fraudulent and coercive practices on the basis that he submitted a fraudulent expense claim and made threats in an effort to have the fraudulent expenses paid.

What are the potential consequences of a sanctions proceeding?

The same range of sanctions appears in the respective sanctions procedures of the World Bank and AfDB. The sanctions, which are generally publicized, may be imposed in connection with a negotiated settlement or a contested proceeding.

The most commonly-imposed sanction is debarment, which means that the sanctioned company or individual is declared ineligible to participate in or otherwise benefit from any Bank-financed project. A debarment may be permanent or for a specified period of time, which in practice ranges from less than one year to many years—for example, the World Bank’s Sanctions Board recently imposed a 22.5-year debarment in a case involving allegations of corrupt, collusive, and obstructive practices. A debarment of longer than one year will generally qualify for cross-debarment by the other MDBs.

Debarment is often combined with “conditional release,” which means that the sanctioned party must demonstrate that it has satisfied certain conditions to have the debarment lifted. A party may also be “conditionally non-debarred,” which means that the party will remain eligible for participation in Bank-financed projects but must comply with specified conditions, failing which the non-debarment will be converted into a debarment. The conditions that are imposed typically include the implementation of a satisfactory compliance program and may include additional conditions such as cooperation with Bank investigations or the appointment of a compliance monitor.

The MDBs may also require sanctioned parties to pay restitution or other financial remedies. For example, in 2014, AfDB required four companies implicated in the Bonny Island corruption matter in Nigeria to pay a total of $22.7 million, to be used in AfDB projects preventing and combating corruption in countries across Africa. In 2017, a company that settled a corrupt practices case with the World Bank agreed to pay a financial remedy of €6.8 million to the DRC.

Finally, the MDBs frequently make referrals to national law enforcement authorities, which may initiate their own investigations and bring administrative or criminal enforcement actions. The introduction to INT’s 2017 annual report noted that the World Bank has “formalized information sharing and joint activities with . . . counterparts through 55 cooperation agreements” and “helped national authorities and other anti-corruption bodies stay apprised of relevant fraud and corruption risks by making 456 referrals in 101 countries.” INT’s 2018 annual report indicates that a further 43 referrals were made in the 2018 fiscal year. There have been a number of instances in which parallel enforcement actions were brought by an MDB and a national law enforcement authority—for example, in 2015, Hitachi Ltd. entered into settlements with AfDB and the U.S. Securities and Exchange Commission (“SEC”) based on allegations that its subsidiary channelled payments to the African National Congress to secure power contracts in South Africa. In a press release announcing the settlement, the SEC noted that it appreciated the assistance it had received from AfDB’s Integrity and Anti-Corruption Department and hoped the cooperation would represent “the first in a series of collaborations.”

How can a compliance program help?

Companies involved in MDB-financed projects should implement policies, procedures, and controls to guard against the occurrence of sanctionable practices. Even if such controls fail to prevent misconduct, they can put the company in a better position to defend itself in a sanctions proceeding. For example, when determining whether a misrepresentation was reckless for purposes of assessing whether a company has committed a fraudulent practice, the World Bank’s Sanctions Board has indicated that it will consider whether the company took precautions that were commensurate with the risk at issue. Similarly, in assessing whether a company should be held responsible for the actions of a “rogue employee,” the Sanctions Board generally considers whether the company had controls and supervision in place sufficient to prevent or detect the misconduct in question. If a company is sanctioned, being able to demonstrate that a robust compliance program is in place may help the company secure a shorter period of debarment or avoid the imposition of a compliance monitor.

The compliance measures that are put in place should be guided by a thoughtful risk assessment, the Integrity Compliance Guidelines published by the MDBs, and the patterns of conduct on which past sanctions cases have been based. In addition, insights regarding the control failures underlying past enforcement matters can be gleaned from past World Bank Sanctions Board decisions, which have been published in full since 2012. For example, past decisions have highlighted the importance of taking steps to ensure that no inaccurate or misleading information is included in tender submissions (including by implementing four-eye verification procedures and processes to authenticate key documents, structuring performance incentives in a way that promotes ethical practices, and providing sufficient guidance to personnel involved in preparing submissions); ensuring that robust financial controls are in place and regularly tested through audits; and ensuring that the use of agents is subject to appropriate due diligence and monitoring. Many of these principles will be familiar to anti-corruption compliance professionals, as they are consistent with the compliance best practices articulated by enforcement authorities including the U.S. Department of Justice (“DOJ”), which we discussed most recently in an alert describing 2017 guidance released by the DOJ’s Fraud Section regarding the criteria it has generally found relevant in evaluating corporate compliance programs.

This article is intended to provide general information. It does not constitute legal advice. If you have questions about navigating World Bank or AfDB sanctions proceedings, or implementing a compliance program that can help mitigate debarment risk, please contact Ben Haley at bhaley@cov.com, David Lorello at dlorello@cov.com, or Sarah Crowder at scrowder@cov.com.